(LO 2) Notown Recording Studio rents studio time to musicians in 2-hour blocks. Each session includes the use of the studio facilities, a digital recorded CD of the performance, and a professional music producer/mixer. Anticipated annual volume is 1,000 sessions. The company has invested $2,300,000 in the studio and expects a return on investment (ROI) of 15%. Budgeted costs for the coming year are as follows.
| Per Session | Total | |
| Direct materials (CDs, etc.) | $20 | |
| Direct labor | $400 | |
| Variable overhead | $50 | |
| Fixed overhead | $950,000 | |
| Variable selling and administrative expenses | $40 | |
| Fixed selling and administrative expenses | $540,000 |
Instructions
a. Determine the total cost per session.
b. Determine the desired ROI per session.
c. Calculate the markup percentage on the total cost per session.
d. Calculate the target price per session.
Use cost-plus pricing to determine various amounts.
